The Firm in the Table Below Produces Denim Jeans and Each

question 84

Multiple Choice

The firm in the table below produces denim jeans and each unit of capital represents one sewing machine.The MRP for each of machines 10 through 14 is provided.Each sewing machine delivers a stream of MRPs beginning one year from now,for a total of 2 years.Assume that after 2 years each sewing machine is worth nothing.
TABLE 15-2
-Refer to Table 15-2.Suppose the interest rate is 4%,the purchase price of a sewing machine is $3000,and the firm is holding its optimal capital stock.If the interest falls to 2%,how will this firm adjust its capital stock?

• A)it will reduce its number of machines from 12 to 11
• B)it will reduce its number of machines from 14 to 13
• C)it will not change its capital stock
• D)it will increase its number of machines from 11 to 12
• E)it will increase its number of machines from 13 to 14

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Definitions:

Price

The amount of money expected, required, or given in payment for something.

Normal Good

A normal good is a type of good for which demand increases when income increases, and falls when income decreases, holding all other factors constant.

Income

Refers to the money received, especially on a regular basis, for work or through investments.

Normal Goods

Goods for which demand increases as consumer income rises, and falls when consumer income decreases, opposite to inferior goods.